International Arbitration: does it still lead the field?

United Kingdom

In recent years arbitration in England has suffered a significant decline in popularity as the disputes resolution method of choice under domestic construction contracts. Internationally the position is very different.

The decline of domestic arbitration is the result of two main factors – the first, the perception, only partially accurate, that large construction arbitrations generate a higher level of cost than similar proceedings before the TCC and, secondly, the far more difficult issue of multiparty disputes. In short, the dilemma – familiar to many – is that in the absence of agreement between the parties multi-party proceedings cannot be heard by a single arbitral tribunal. Many if not most large-scale construction disputes will of course come into that category.

Internationally the position is very different. While generally speaking similar problems are encountered in relation to multiparty proceedings – and these can usually only be overcome by some form of ambitious umbrella agreement – arbitration remains the pre-eminent method of disputes resolution for international construction contracts of every kind.

I was reminded of the sheer scale of international arbitration and its importance to the international construction industry at a recent CMS weekend seminar which we held in Brussels and which was attended by colleagues from over a dozen jurisdictions including many from central and eastern Europe.

At present we are seeing particularly rapid growth across this region as the increasing sophistication of these markets together with EU accession have created an environment in which international arbitration is beginning to gain a significant level of acceptance.

The other factors leading to growth in recourse to arbitration in the new Europe are common to most if not all jurisdictions. They include:

  • Flexibility;
  • Party autonomy subject only to the principles of natural justice;
  • Recourse to a neutral tribunal in a neutral location – a significant consideration where the project is in a politically sensitive country;
  • Confidentiality;
  • Finality – some jurisdictions (unlike England and Wales) exclude all appeals; and
  • Ready enforceability by international convention or otherwise.

As is well known, the world of international arbitration is dominated by the major arbitration institutions and the arbitral rules which they produce. First on the scene was probably the London Court of International Arbitration, founded in 1892, while the most high profile is the arbitration regime administered by the International Chamber Commerce or ICC which is based in Paris and which was founded in 1919.

There is of course an increasing range of dispute resolution mechanisms available and the list has grown longer over recent years. They include expert determination and its closely related cousin, early neutral evolution, as well as dispute review boards and of course mediation. Increasingly – and this can be seen in the continuing revolution at the TCC – the trend is towards combining one or more of these procedures together with litigation or arbitration to provide a sort of a la carte menu of options to the parties where a dispute arises. With their neutral status and access to technical expertise arbitral institutions are ideally placed to provide such a service and many of them are now doing so. By way of example, the LCIA offers a wide-ranging mediation procedure as a prelude to arbitration under the LCIA rules while the ICC provides conciliation services as well as a pre-arbitral referee procedure aimed at providing a fast track provisional solution where an urgent problem arises.

Recourse to arbitral institutions is often expensive. The ICC for example has a sliding scale of administration expenses and arbitrator’s fees which obviously need to be added to the other costs of the parties’. On the other hand, the advantages of what is sometimes called the administered arbitration option should not be overlooked. All significant arbitral institutions provide robust recommended arbitration clauses and well-established sets of rules which the parties accept when they incorporate those clauses into their contracts. The major institutions also operate an administrative service to help organise the mechanics of the arbitration and these bodies will also act as secure and independent fund holders of sums deposited by the parties in respect of costs.

The alternative is for the parties to agree to a so-called ad hoc arbitration which is effectively administered by the parties themselves. Parties adopting this course are able to make use of an internationally respected set of rules produced by the UN Commission on International Trade Law or UNCITRAL. While UNCITRAL does not administer arbitrations, its rules address the fundamentals of effective arbitral procedures including provisions for the composition of the tribunal and challenges to arbitrators and the procedure to be adopted by way of submissions, evidence and hearings.

One increasingly high profile area addressed in the UNCITRAL rules among others is the question of so-called interim measures of protection. Such measures typically include by way of example orders by the tribunal aimed at preserving the subject matter of the dispute which could include interim injunctions. The UNCITRAL and ICC rules contain broadly similar provisions. In addition, Article 23 of the ICC rules also allows the parties to apply to any competent court for an order in respect of “interim or conservatory measures” in appropriate circumstances and makes it clear that such an application will not be seen as a breach of the arbitration agreement.

Inevitably, the readiness with which the parties can have recourse to local courts and the rules which apply vary widely between jurisdictions. To help parties find their way through this maze we have put together a CMS guide to arbitration in Europe covering arbitration practice in all the major European jurisdictions. The Guide includes sections dealing with interim measures and the role of the courts in each jurisdiction and is available online on www.law-now.com/guidetoarbitration05.

As for the position in the UK, under the 1996 Arbitration Act the parties are free to agree what powers the tribunal should have in relation to interim orders, including for such matters as security for costs and injunctions. Generally, the parties will not have agreed any specifics in writing and the default position under the Act is set out in section 38. Among other matters this gives the tribunal power to:

  • Order a claimant to provide security for costs; and
  • Make directions for the preservation of property.

hThe Act also gives the courts a role. At section 44 it provides that unless otherwise agreed by the parties the court will have the power to make a range of orders including orders to preserve evidence and grant an interim injunction.

In the space available this can only be a broad brush look at international arbitration. Rules and local laws can vary and widely and an important further factor to be borne in mind is the civil law nature of European jurisdictions and the different approach which they traditionally have to matters such as disclosure and witness evidence. For the international construction community, however, arbitration remains probably the best option for the binding resolution of international disputes.


This article first appeared in our Construction and development legal update Spring 2006. To view this publication, please
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